Much has been discussed about SAP’s pending $3.4B acquisition of SuccessFactors, and now Oracle’s $1.9 billion deal to buy Taleo. Rightly, SAP and Oracle have been praised for trying to bolster their cloud offerings with these moves. But, in a few years, I wonder if it will really matter. Because, while SAP and Oracle are obviously trying to get with the times by offering their services via the cloud, it may be too late. Why? Because, in short, ERP – enterprise resource planning software – is on its deathbed.

That’s right. ERP’s days are numbered. And it is because of a fundamental shift that is taking place regarding how people consume products and services driven by the massive growth of the cloud itself.

I’m referring to the shift we are experiencing away from a 20th century product-based, “buy once” economy to a 21st century services-based “Subscription Economy” centred around recurring customer relationships.

Think about it: there is a very good chance you are one of the exploding number of consumers who now access their music via a subscription such as Pandora or Spotify. Perhaps you are one of the many people who have stopped renting DVDs in favor of streaming your movies over Netflix. Or, you could be one of the growing number of consumers who have eschewed owning a car to accessing one via a subscription with Zipcar. Or, maybe you are one of the growing list of companies who are voting “no” to buying hardware and software and instead are using apps and computing power served up from the cloud. As an economy and a culture, we are rapidly moving away from owning tangible goods and, instead, gravitating towards becoming members of services that provide us with experiences – such as listening to a song, using a car, watching a movie or collaborating with our colleagues.

Of course, this cultural transformation has profound implications for business models. Why? Success is no longer gauged by counting how many units of your product you have sold. Rather, success is measuring how many customers are using your service on a recurring basis and how successful you are monetizing those recurring relationships.

Today, the Subscription Economy is fuelling massive changes across communications, media, technology, consumer services and other billion dollar industries that are embracing subscription revenue models. In addition to the names above, innovative companies that adopted the subscription business models to fundamentally transform their industries include Salesforce.com, Box, Tata, VNU Media and Zendesk.

But, it is not just the upstarts that are leveraging the subscription model. A greater indicator of this shift is that traditional product companies such as Dell are racing to re-invent themselves around services. Dell recognized that selling low-margin hardware was simply much less lucrative than offering services. Consequently, Dell has acquired service companies and refocused its efforts around, “pricing our products based on value rather than based on cost,” according to Michael Dell. And it is working. In a recent Q3 earnings call, Michael Dell stated, “This is a new Dell…in Q3, our enterprise solutions and service business grew 8% to a record high $4.7 billion.”

And Dell is just one of the many titans of industry that have shifted to a service-based model. According to a recent Gartner Group report, “by 2015, 35% of Global 2000 companies with non-media digital products will generate incremental revenue of 5% to 10% through subscription-based services and revenue models.”

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But for small businesses, myERP.com might be the future, more than SAP ByDesign which targets the mid-market. Super easy to use, integrated with Google Apps (Gmail, Google Calendar…) and free for 2 users. Try it now!

This article raises several issues that are certainly worth exploring: the future of ERP systems, subscription software models, and cloud delivery techniques. Unfortunately these are all distinct things that, while they can be related, I’m afraid are instead being conflated in this article.

Delivering software as a service is both a technical and a commercial issue about how users access and pay for the system. ERP is a type of software, which can be delivered as a service or installed on the client’s premise. I don’t see anything in this article to justify the notion that ERP is dying because of the service delivery model. In fact, there are a number of ERP vendors delivering systems this way, even companies such as SAP are already doing this alongside their on-premise systems.

Additionally, while the service model may be a rising trend, it still accounts for VERY LITTLE of the overall demand in the market. Last year, if I recall correctly, maybe 13% to 14% of end user demand was for SaaS systems (that would be out of hundreds of thousands of surveys we review at my company, TEC).

The service delivery model has plenty of benefits, which an increasing number of clients appreciate, but it also has a lot of disadvantages and it is definitely not the best model for everyone. Let’s be careful not to get carried away with monumental predictions that don’t follow from the situation at hand.

I completely agree with the other two comments – ERP is not on its deathbed. The software vendors are adding sofistication and analytics on the daily that make these systems better and better, and they are not going to stop investing anytime soon. SAP Business ByDesign is a perfect example of a complete end-to-end business solution for an ERP system for the SME customers out there.

1) in 15 or 20 years there will still be people who BUY cars, shampoos, cigarettes …. Not everything will be transformed into a subscription business.

2) ERP is not dead just because it lacks some (reporting) functionality

3) the idea of ERP was initially to break up the “software silos”, which was done quite successfully over the past 20 years BUT software vendors obviously make more money by selling CRM & reporting functions separately –> there´s a need of integration of CRM/SCM & reporting into ERP and not vice versa

4) subscription businesses also need basic business data like FI, CO…and all other kinds of “classic ERP data”…I don´t see how a company should manage its financial closing without some kind of ERP ?

5) We have established salesforce.com in a company in which I have previously worked. it was not accepted by the users because there are almost no options to customize it –> you can not really compare tools like salesforce.com with (SAP) ERP

Well it seems that you do not understand what ERP is doing. Because ERP has to do with production of goods in relation to the operation of an organizational unit. It has less to do with the retail customers.

No, ERP is not “dead”. Unless you think manufacturing is dead. ERP systems are selling like gangbusters in China, for example.

Even “new economy” icon Apple relies on devices to tie its services to.

And finally, ERP software will evolve to handle services and it will become better integrated with CRM software. That’s the real trend – systems that will track the total customer relationship in real time.